Walker & Dunlop(US:WD)2024-11-07 11:15Loan Origination and Refinancing - 68% of refinancing volumes come from new loans, and 19% of total transaction volumes come from new customers for the nine months ended September 30, 2024[142] - The company is focused on significantly growing its small-balance multifamily lending platform, supported by acquisitions that enhance data analytics and technology development[153] - GSE lending volumes in Q3 2024 increased to $3.5 billion, up 33% from Q2 2024, driven by improved capital supply and increased multifamily property sales[188] - The Mortgage Bankers Association forecasts multifamily lending to rise to $339 billion in 2024, a 25% increase from $271 billion in 2023[189] - Fannie Mae and Freddie Mac's multifamily origination volumes for the year to date ended September 30, 2024 were $32.5 billion and $35.1 billion, respectively, with $72.4 billion in combined available lending capacity for Q4 2024[190] - Loan origination and debt brokerage fees increased by $14.4 million (9%) to $182.6 million, driven by higher debt financing volumes[204] - Loan origination and debt brokerage fees increased by $14.4 million (9%) to $182.62 million for the nine months ended September 30, 2024, compared to the same period in 2023[217] - Origination fees increased by $16,574 (30%) to $72,723 in 2024 from $56,149 in 2023[238] - Origination fees for the nine months ended September 30, 2024, increased by $12,585 (8%) to $180,264 from $167,679 in 2023[239] - Origination fees increased by 30% to $72.72 million for the three months ended September 30, 2024, compared to $56.15 million in 2023[255] Servicing and Risk-Sharing Obligations - The company retains servicing rights and asset management responsibilities on substantially all Agency loan products it originates and sells, generating cash revenues from servicing fees[159] - Under the Fannie Mae DUS program, the company is required to advance principal and interest payments for four months if a borrower ceases payments, with potential reimbursement from Fannie Mae[159] - The company is obligated to advance principal and interest payments under the Ginnie Mae program until the loan is brought current, fully paid, or assigned to HUD[159] - The company is not obligated to make advances on loans serviced under the Freddie Mac Optigo® program and its bank and life insurance company servicing agreements[159] - The company absorbs losses on the first 5% of the unpaid principal balance of a loan under full risk-sharing, with a maximum loss capped at 20% of the original unpaid principal balance, equating to a maximum loss per loan of $60 million for loans up to $300 million[160] - The weighted-average annual loss rate for risk-sharing obligations declined from 0.6 basis points to 0.3 basis points in Q1 2024 due to updated loss data[176] - The forecast-period loss rate for risk-sharing obligations remained relatively unchanged at 2.4 basis points as of December 31, 2023, and 2.3 basis points as of March 31, 2024[177] - Fannie Mae DUS risk-sharing obligations are structured with tiered loss absorption percentages, with the company absorbing 100% of the first 5% of UPB at loss settlement[309] - The allowance for risk-sharing obligations for the Company's $60.6 billion at-risk Fannie Mae servicing portfolio as of September 30, 2024 was $29.9 million, compared to $31.6 million as of December 31, 2023[313] - As of September 30, 2024, seven at-risk loans with an aggregate UPB of $59.6 million were in default, compared to no at-risk loans as of September 30, 2023[314] - The collateral-based reserve on defaulted loans was $6.5 million as of September 30, 2024, compared to zero as of September 30, 2023[314] - The company had a benefit for risk-sharing obligations of $0.2 million for the three months ended September 30, 2024, compared to a provision of $0.6 million for the same period in 2023[314] Financial Performance and Revenues - Total revenues for Q3 2024 increased by 9% to $292.3 million, driven by increases in loan origination and debt brokerage fees, servicing fees, and property sales broker fees[200] - Total revenues increased by $10.9 million (1%) to $791.0 million for the nine months ended September 30, 2024, compared to $780.1 million in the same period in 2023[204] - Servicing fees increased by $10.7 million (5%) to $242.7 million, primarily due to growth in the GSE servicing portfolio[204] - Placement fees and other interest income rose by $14.7 million (13%) to $124.0 million, driven by higher short-term interest rates[204] - Adjusted EBITDA increased by $21.4 million (10%) to $234.0 million for the nine months ended September 30, 2024, compared to $212.5 million in 2023[213] - Income tax expense decreased by $5.1 million (21%) to $19.6 million, driven by lower income from operations and a $1.1 million tax adjustment[204][209] - Adjusted EBITDA for the nine months ended September 30, 2024, increased by $21.4 million (10%) compared to the same period in 2023, reaching $233.97 million[217] - Servicing fees increased by $10.7 million (5%) to $242.68 million for the nine months ended September 30, 2024, compared to the same period in 2023[217] - Investment management fees decreased by $4.8 million (11%) to $40.09 million for the nine months ended September 30, 2024, compared to the same period in 2023[217] - Placement fees and other interest income increased by $14.7 million (13%) to $123.99 million for the nine months ended September 30, 2024, compared to the same period in 2023[217] - Net cash used in operating activities increased by $69.0 million (21%) to $401.46 million for the nine months ended September 30, 2024, compared to the same period in 2023[224] - Total revenues for the three months ended September 30, 2024, decreased by $3.256 million (2%) compared to the same period in 2023[261] - Servicing fees increased by $3.022 million (4%) for the three months ended September 30, 2024, driven by a $3.2 billion increase in Fannie Mae and a $1.4 billion increase in Freddie Mac loans serviced[263][264] - Investment management fees decreased by $1.618 million (12%) for the three months ended September 30, 2024, primarily due to a $3.5 million decline in LIHTC operations[261][264] - Placement fees and other interest income increased by $824,000 (2%) for the three months ended September 30, 2024, driven by higher short-term interest rates and a 4% increase in escrow deposit balances[261][265] - Other revenues decreased by $6.424 million (41%) for the three months ended September 30, 2024, due to a $3.0 million decline in equity method investments and a 78% drop in gross equity raised[261][266] - Adjusted EBITDA for the three months ended September 30, 2024 was $117.455 million, a decrease of 6% compared to $124.849 million in the same period in 2023[277] - Adjusted EBITDA for the nine months ended September 30, 2024 was $361.614 million, an increase of 4% compared to $346.283 million in the same period in 2023[278] - Servicing fees increased by 4% to $82.222 million for the three months ended September 30, 2024, driven by growth in the average servicing portfolio[277][280] - Placement fees and other interest income increased by 12% to $113.072 million for the nine months ended September 30, 2024, largely due to higher placement fee rates[278][281] - Net income for the nine months ended September 30, 2024 was $121.197 million, a decrease of 8% compared to $132.243 million in the same period in 2023[275] - Adjusted EBITDA for the three months ended September 30, 2024 was $(33.9 million), a 3% improvement compared to $(35.1 million) in the same period of 2023[290] - Adjusted EBITDA for the nine months ended September 30, 2024 was $(95.2 million), a 7% decrease compared to $(89.0 million) in the same period of 2023[291] - Other interest income increased by 26% to $10.9 million for the nine months ended September 30, 2024, driven by higher interest rates on cash deposits[292] Market and Economic Conditions - The national unemployment rate was 4.1% in September 2024, with multifamily vacancies stabilizing at 5.6%, down from 5.8% in December 2023[192] - The effective Federal Funds Rate (EFFR) was 483 basis points as of September 30, 2024, compared to 533 basis points as of September 30, 2023[319] - A 100-basis point increase in EFFR would result in a $30.8 million increase in annual placement fee revenue as of September 30, 2024, compared to $28.2 million as of September 30, 2023[320] - The base SOFR was 496 basis points as of September 30, 2024, compared to 531 basis points as of September 30, 2023[320] - A 100-basis point increase in SOFR would result in a $10.4 million decrease in annual net warehouse interest income as of September 30, 2024, compared to a $7.8 million decrease as of September 30, 2023[321] - A 100-basis point increase in SOFR would result in a $7.8 million decrease in annual income from operations as of September 30, 2024, compared to a $7.9 million decrease as of September 30, 2023[322] - A 100-basis point increase in the weighted average discount rate would decrease the fair value of the company's MSRs by approximately $43.1 million as of September 30, 2024, compared to $43.2 million as of September 30, 2023[323] Acquisitions and Investments - The company purchased the remaining 25% interest in Zelman & Associates during the fourth quarter of 2024, enhancing its housing market research and investment banking capabilities[156] - WDIP, a subsidiary, manages $2.0 billion in regulatory assets under management (AUM) across six investment vehicles and separate accounts for life insurance companies[163] - The Interim Program JV, a joint venture with Blackstone Mortgage Trust, Inc., offers short-term senior secured debt financing products, with the company holding a 15% ownership interest[164] - WDIP launched a credit fund in Q4 2023 focused on transitional lending, with a 5% co-investment obligation and a percentage of returns above the fund return hurdle rate[166] - WDAE, a subsidiary, is one of the largest tax credit syndicators and affordable housing developers in the U.S., managing LIHTC funds and earning syndication fees[167] - The company's first credit fund raised $150 million, enabling the deployment of nearly $500 million of leveraged capital to the transitional multifamily lending market in 2024[194] Operational and Strategic Developments - The company has increased the number of property sales brokers and expanded its geographical reach, now covering many major markets in the United States[155] - Apprise, the company's appraisal platform, has increased its market share in the appraisal market through hiring and recruiting, supporting long-term growth[157] - Transaction activity in Q3 2024 surged to $11.6 billion, the highest quarterly total in nearly two years, with property sales volume reaching $3.6 billion, a 44% increase compared to Q3 2023[188] - Total transaction volume for Q3 2024 was $11.6 billion, a 37% increase quarter on quarter, with debt financing volume at $8.0 billion and property sales volume at $3.6 billion[197] - Total Debt Financing Volume increased by $1,980,781 (11%) to $19,761,808 in 2024 compared to $17,781,027 in 2023[237] - Property sales broker fees increased by $2,460 (15%) to $19,322 in 2024 from $16,862 in 2023[238] - Total Managed Portfolio grew by 4% to $152.29 billion as of September 30, 2024, from $146.29 billion in 2023[258] - Custodial escrow deposit balance increased to $3.1 billion as of September 30, 2024, from $2.8 billion in 2023[258] - The company paid a cash dividend of $0.65 per share in Q3 2024, a 3% increase compared to Q3 2023, and declared another $0.65 per share dividend for Q4 2024[295] - As of September 30, 2024, the company had a net worth of $936.7 million, significantly above the Fannie Mae requirement of $318.6 million[294] - The company held $156.9 million in Agency MBS as collateral for Fannie Mae DUS risk-sharing obligations as of September 30, 2024[298] - Total loans serviced for others increased to $134.0 billion as of September 30, 2024, up from $128.9 billion in the same period of 2023[305] - Defaulted loans in the Fannie Mae at-risk portfolio represented 0.10% of the portfolio as of September 30, 2024[305] - The company has $75.0 million remaining capacity under its stock repurchase program approved in February 2024[296] Expenses and Provisions - Total expenses increased by $30.4 million (4%) to $711.7 million, primarily due to higher provision for credit losses and other operating expenses[204] - Provision for credit losses increased by $17.4 million (157%) to $6.3 million, mainly due to losses related to Freddie Mac forbearance agreements[204][205] - Goodwill impairment decreased by $14.0 million (100%) as there was no triggering event in 2024 compared to 2023[204][208] - Personnel expenses increased by $1.6 million (0.4%) to $390.1 million, primarily due to higher commission costs[204] - Personnel expenses increased by $7,014 (7%) to $104,987 in 2024 from $97,973 in 2023[238] - Goodwill impairment decreased by $14,000 (100%) to $0 in 2024 from $14,000 in 2023[238] - Personnel expenses increased by $3.812 million (22%) for the three months ended September 30, 2024, due to higher salaries, benefits, and commission costs[261][268] - Provision for credit losses increased by $2.429 million (577%) for the three months ended September 30, 2024, primarily due to a $3.0 million increase in the fair value of forbearance agreements[261][269] - Total expenses increased by $8.721 million (10%) for the three months ended September 30, 2024, driven by higher personnel, credit loss provisions, and other operating expenses[261] - Personnel expenses in the corporate segment decreased by 8% to $19.600 million for the three months ended September 30, 2024, primarily due to a reduction in subjective bonuses[281][285] - Other operating expenses in the corporate segment increased by 16% to $60.093 million for the nine months ended September 30, 2024, driven by higher travel, entertainment, and software costs[283][287] Contingent Consideration and Goodwill - The company recorded a $62.5 million reduction to the fair value of contingent consideration liabilities in 2023 based on revised management forecasts and valuation inputs[182] - The aggregate fair value of contingent consideration liabilities as of September 30, 2024 was $79.4 million, with maximum remaining undiscounted earnout payments of $258.5 million[183] - Goodwill as of September 30, 2024 was $901.7 million, with a $62.0 million impairment in 2023 due to challenging macroeconomic conditions[184]